Does financial innovation foster financial inclusion in Arab world? examining the nexus between financial innovation, FDI, remittances, trade openness, and gross capital formation

The present paper aims to study the impacts of financial innovation on financial inclusion for selected 22 Arab countries from 2004 to 2020. It considers financial inclusion as a dependent variable. It describes ATMs and the number of commercial banks’ depositors as proxy variables. In contrast, financial inclusion is considered an independent variable. We used the ratio between broad and narrow money to describe it. We employ several statistical tests such as lm, Pesaran, and shin W-stat, a- tests for cross-section dependence, and unit root and panel granger causality with NARDL and system GMM approaches. The empirical results reveal the significant nexus between these two variables. The outcomes suggest that adaptation and diffusion of financial innovation play catalyst roles in bringing unbanked people into the financial network. In comparison, the inflows of FDI establish mixed positive and negative effects, which vary with model estimation following different econometrical tools. It is also revealed that FDI inflow can augment the financial inclusion process, and trade openness can play a directive role and enhance the financial inclusion process. These findings suggest that financial innovation, trade openness, and institutional quality should continue in the selected countries to enhance financial inclusion and promote capital formation in the selected countries.


Introduction
Saving money and financial resources for future use is a natural habit. Households choose to forego some current consumption and save money for increased spending in the future regardless of their social or spiritual identity and character. Typically, the saved money was stashed in one's property, such as an attic, under the ground, and in a mattress or cushion. With the advent of the modern banking and finance system, households started depositing surplus funds into banks, initially for the safe custody of their money. Then banks started offering them retunes on their savings under various schemes. Some households and firms prefer keeping their savings or surplus money in cash. However, most individuals and institutions prefer to use banks to convert their idle surplus money into investments through banks and financial bodies [1][2][3][4]. In this way, banks serve as an intermediary between those who want to invest and those who want to be invested. Thus, banks facilitate the smooth functioning of the economy's financial sector. Recently, with the advent of technologies and the inclusion of scientific knowledge in banking, the financial industry underwent a transformation phase and entered into a new era of development. With this innovative emergence of digital and wireless technologies, the banking industry has transformed from the traditional style of banking, where the customer's physical appearance was a must for the banking transaction, to an innovative banking style where financial technology and innovation give birth to branchless banking [5]. An individual can either walk into a bank for his banking transactions or go online and do the same with convenience in terms of time and costs. This innovation and emerging branchless or online banking trend are changing how payments, savings, borrowing, and investment services are, regardless of the developing and developed world.
With the emerging demands of individuals and business firms and the development in technology and innovation, banking has become sturdier than in the past. Nowadays, the query may be raised about whether the banks will shy away from bringing everyone into the financial system. That might result in low per capita economic performance, a decline in lending and investments, and a drop in employment. For achieving the macroeconomic objectives and goals, the significance of the financial sector as a prime stimulant is well understood, realized, and documented; plenty of scholarly work shows a close link between financial inclusion (hereafter FI) and financial innovation (hereafter FIN). Consequently, financial inclusion has gotten the attention of scholars, authorities, institutions, international organizations, and social activists. It has become an essential agenda in the development programs and policies of governments and international institutions, including the UN. Given the limits of previous research, this work aims to close the gap by incorporating a few proxy measures to quantify financial inclusion (FI) and Financial Innovation (FIN.) We incorporated a few macroeconomic indicators as control variables to boost the estimation's robustness.
The present study considered financial innovation and FDI inflows in the financial inclusion equation in Arab nations. Financial innovation has become increasingly important in achieving financial inclusion globally. It has enabled millions of people to access financial services, such as loans and savings, that they may have otherwise been excluded from due to a lack of resources. Financial innovation helps to foster financial inclusion by providing access to financial services to members of society and individuals who previously lacked such access [6]. Financial innovation provides different types of services that can be tailored and adapted to the needs of different individuals, including those who were previously unable to access financial institutions or services. Through technology, new financial products that are more affordable or have lower entry requirements than traditional financial products can be created. That allows individuals who would otherwise not have access to such services due to limited income, lack of financial education, or other barriers to gain access to these services, enabling them to manage their finances better and build their assets [7,8]. Additionally, financial innovation can help reduce the cost of financial services, allowing more people to access such services. Financial inclusion is increased by providing access to more people, allowing individuals and businesses to obtain the capital they need to achieve their economic goals.
Foreign direct investment can help promote financial inclusion by improving access to capital, technology, and markets for small businesses, particularly in developing countries. By providing much-needed capital and resources to entrepreneurs and small businesses, FDI can help increase access to financial services and products, such as bank accounts and credit cards, boosting the overall financial inclusion rate. FDI also brings technological advances that can increase the speed and efficiency of financial services. Additionally, access to new markets created through FDI can help stimulate economic growth, creating new opportunities for entrepreneurs and small business owners. All of these effects have the potential to enhance overall financial inclusion levels.
As a case study, the present study has considered Arab nations in a panel data investigation. One of the most significant objectives of financial inclusion is to decrease poverty and foster economic growth in emerging nations. Through expanding access to financial services, individuals in these nations can establish companies, purchase houses, and send their children to school. Notwithstanding the advantages of financial inclusion, there are currently 1,7 billion people without bank accounts worldwide. In addition, many individuals in underdeveloped nations continue to depend on informal financial services such as payday lenders and pawn shops. This is often because official financial institutions are either too far away or too costly for them to utilize. Technology can help bridge the divide between individuals with and without access to financial services. In Kenya, for instance, mobile money services such as M-Pesa enable individuals to send and receive money without a bank account [9]. Moreover, mobile devices may be used to access banking services, make payments, and transfer funds. Financial inclusion is a crucial strategy for supporting economic growth in underdeveloped nations. Expanding access to financial services can help alleviate poverty and expand opportunities for everyone [10].
The motivation of the study is to gauge the effect of financial innovation, FDI, remittances, trade openness, and gross capital formation as a determinant of financial inclusion in Arab nations by employing the robust panel date estimation.
To the authors' knowledge, this is the first research in the Arab World to use the variables mentioned above for Nonlinear Autoregressive Distributed Lagged (NARDL) and system GMM modeling in the Arab context. In doing so, we hope to add to the extant literature on this crucial topic and uncover relevant findings for developing long-term policies for inflows of FDI in Arab countries. In Arab countries, we look at possible nonlinear interactions between FI, FIN, Economic growth (Y), Gross Capital Formation (GCF), foreign direct investment (FDI), Tide openness (TO), and personal remittances (PR). The previous literature on Arab countries focuses on FIN's critical role in FI. As a result, the current research examines the long-term correlations between several variables in Arab economies.
The current work focuses on FIN as a critical indicator for understanding FI. It considers the possibility of nonlinear interactions between FI and FIN, previously overlooked in paned data analysis. This study is the first to investigate the nonlinear interactions between these variables in Arab economies. The present work examines the connection between technology and the financial sector to study the effects of technology on FI and FDI for the 22 selected Arab countries. The study uses the data from 2004 to 2020, employs panel data analysis, and considers FI as dependent variables, the ratio between broad money and small money, and ATMs and the number of depositors with commercial banks as proxy variables to describe it. We employ several statistical tests. The data and methodology section gives precise details of these tests and techniques. It is found that there are only a few analytical studies on the Arab countries from financial innovation and FI perspectives. Therefore, there is a dire need to fill this gap by conducting a thorough empirical investigation. The present study considers financial innovation a key indicator for explicating FI and incorporating the possible nonlinear relationships between FI and FNI. The present study attempts to meet this need and to add a constructive addition to the existing literature on government expenditure and trade balance.
This study's formation is as follows: Section 2 briefly analyzes the existing studies related to the topic. Our research approach, model specification, and data are presented in section 3. The following section summarizes the empirical findings, analysis, and interpretations. Moreover, the summary of the main findings and conclusion of the study, followed by suggestions, is provided in the last section.

Literature review
To begin, we will examine the evidence regarding financial inclusion. The current research concentrates on the linkage between Financial Inclusion and Innovation, primarily mediated by FDI inflows. The current purported work is summarized into three categories for coherence.

Studies on financial inclusion
Financial innovation is a concept that involves the introduction of new products, services, or processes in the financial sector. It has been designed to improve access to financial services by providing more inclusive and cost-effective products suited to the needs of low-income and underserved populations. Financial innovation has enabled financial institutions to increase the reach of their services and provide greater access to financial inclusion for those traditionally excluded from the banking system. Financial innovation has also helped to reduce transaction costs, reduce risks associated with accessing finance, and make financial products more accessible to vulnerable communities, ultimately improving access to opportunities for individuals, households, and businesses that may otherwise have been excluded from the financial sector [11]. As a result, financial innovation has become an essential tool in the drive to promote global financial inclusion. Financial innovations have contributed significantly towards expediting financial inclusion, allowing more people access to banking and credit services, even in remote areas with limited infrastructure. For instance, mobile banking technology, such as mobile payments, has allowed more people to bank without having to visit an ATM or a bank branch physically. Additionally, financial inclusion is supported by technological advancements such as blockchain and digital ledgers, enabling financial institutions to facilitate financial services to those previously excluded due to financial or geographic constraints. This has created unprecedented financial inclusion, providing access to financial services to those previously unable to access them. In conclusion, financial innovations have revolutionized financial inclusion and enabled financial institutions to provide services that were not previously available [12][13][14].
Financial innovation is essential in increasing people's access to financial services and enabling them to manage their finances better. The increased accessibility of banking services has enabled more people to become financially included by being able to open bank accounts, transfer money safely and securely, access credit and manage their finances better. As a result, financial inclusion has increased sharply in recent years due to the availability of these innovative solutions. Moreover, financial innovation has significantly impacted the availability and accessibility of financial services for individuals and businesses in the developing world [15]. This increased accessibility of banking services has enabled more people to become financially included by being able to open bank accounts, transfer money safely and securely, access credit and manage their finances better. As a result, financial inclusion has increased sharply in recent years due to the availability of these innovative solutions.
Numerous types of research have revealed that FI has anti-poverty significance, enables capital mobility, raises savings, advances financial stability, and drives long-term economic prosperity [16][17][18]. Similarly, [19] unearths that financial inclusion has an important influence on restructuring and alleviating poverty in emerging countries. [20] pooled data from the International Monetary Fund's Financial Access Survey and two distinct techniques to create a multifaceted financial inclusion scale for a broad cohort of 95 nations from 2004 to 2015. The findings report that financial inclusion has generally enhanced over the research period. The study revealed that financial inclusion seems to be linked to GDP per capita, jobs, bank competitiveness, intellectual progress, regulatory quality, and internet activity significantly. [21] disclose that increasing SME financial inclusion boosts growth and employment in the Middle East and Central Asia (MENAP and CCA) regions. Thereby shall garner efficiency of fiscal and monetary policies and aid in financial stability in the region. The study estimated that annual economic growth might be improved by up to 1% in some circumstances, driving up to 16 million new jobs in these purported regions by 2025. Kim, Yu & Hassan (2018) investigate the connection between financial inclusion and economic growth in OIC economies. Based on the panel Granger causality tests, it is revealed that financial inclusion has a favorable impact on OIC countries' economic growth. [22] demonstrate that financial inclusion improves business sales growth using 55,596 firms' data from developing and emerging countries. [23] proposes that the government and regulators build legal and supervisory frameworks and encourage financial inclusion activities in the MENA region to improve the accessibility of financial systems. In the very vein [24, 25] demonstrate that financial inclusion programs result in a more significant proportion of the population participating in financial intermediation, promoting financial development and economic prosperity, which entails institutional structures. [22] inspected the influence of financial inclusion and bank concentration on company performance using a sample of 55,596 enterprises from 79 countries. The study reveals that financial inclusion has a favorable impact on firm performance.
[26] investigated that financial inclusion could help alleviate poverty by investigating 79 countries based on their socioeconomic levels.
[27] reveal that financial institutions' openness, depth, efficiency, and development positively affect the economic growth in seven European Union (EU) countries.
[28] evaluated the association between financial inclusion and economic growth in 11 African economies, finding that financial inclusion is strongly and positively correlated with economic growth.
[29] studied the macroeconomic factors of financial inclusion in 27 African countries through dynamic panel data techniques. It is revealed that the lagged value of financial inclusion, GDP per capita, and mobile infrastructure are all highly and positively related.
[30] employed dynamic panel methodology and Granger causality tests in 55 nations from the Organization of Islamic Cooperation. The relationship between financial inclusion and economic growth was explored. The results show that financial inclusion stimulates economic growth.
[31] report that Financial inclusion has evolved into a critical tool for alleviating poverty and increasing prosperity. Thus, the above-cited studies can be deduced that financial inclusion is vital in supporting employment, economic growth, and economic resilience.

Studies on financial inclusion and financial innovation
Another dimension of the purported research corresponds to studies unlocking that financial innovation and technology can improve financial inclusion. Over the last decade, financial innovation, such as new delivery channels, products, and intermediaries, has aided in the rapid expansion of financial inclusion in several countries. Interestingly, financial innovation in Fintech is gaining more interest because studies have revealed the importance and adoption of technologies in many dimensions of the landscape of financial products. For the case of south Asian countries, [32], through the Panel ARDL, reveal the long-term and short-term favorable relationship between financial innovation and financial inclusion in the case of six South Asian countries-Bangladesh, India, Pakistan, Nepal, Bhutan, and Srilanka.
[33], through time-series data from 1980 to 2016, explores the relationship between financial innovation and economic growth in Lesotho. The NARDL model evaluates the relevance of financial innovation's short-term and long-term effects on economic growth. In contrast, the ARDL bounds testing approach appraises long-run cointegration. The results of the limits tests suggested that financial innovation and economic growth in Lesotho are long-run cointegrated.
[34] employ the Panel ARDL in a linear and nonlinear framework to examine the link between financial inclusion and financial innovation, as well as financial development and remittance inflows, in the case of six South Asian countries-Bangladesh, India, Pakistan, Nepal, Bhutan, and Srilanka-using monthly data from 1990M1 to 2018M12. A Granger-causality test has also been used to analyze directional causality using System GMM specification. The outcomes of the Panel ARDL study corroborated the long-term and short-term favorable relationship between financial innovation and financial inclusion. In today's world, however, technology allows non-financial entities like telecommunication companies to provide financial services, a phenomenon known as fintech innovation. People who previously had no access to financial services are now empowered thanks to fintech advancements. Mobile money is a fintech invention frequently hailed as a crucial enabler of financial inclusion [41, 42] unfold that Fintech is one technology innovation that has arisen as a remedy to financial service inaccessibility, mainly via technology such as mobile phones. Studies have brought the positive approach and possible benefits of financial innovation. [43] highpoints the benefits of sustainable financial innovations that reduce financial system defects by lowering risk, closing the information gap, cutting transaction costs, and minimizing tax payments. Financial innovations are used in investment decisions to secure a high return on investment projects, reduce investment risk and transaction costs, and enhance access to varied investment options [44,45]. In line, financial innovation deployed appropriately can enhance revenues (financial revenues) while cutting prices (financial costs), strengthening the company's profitability and significance [46,47].
Endogenous factors prompt financial institutions' ability to create stiff competition amongst financial institutions (both traditional and non-traditional), short-term financial outcomes, the quest for revenue opportunities (other than interest revenues), and the escalating Studies have revealed that ATMs, telephone services, and Internet banking have boosted bank performance [49,50]. Innovative product offerings and solutions, including real-time transaction and credit monitoring, branchless banking, peer-to-peer lending, and Robo-advisory services, including using social trading platforms in investing, are strengthening the financial services firm. [51]. [52] explored the liaison between financial innovation and economic growth in Bangladesh, India, Pakistan, and Sri Lanka. In the dataset of South Asian countries for Q1 1975 to Q4 2016, the ARDL bounds test was used to analyze long-run connections. The NARDL test examined the asymmetry between financial innovation and economic growth.
The limits tests report long-run cointegration between financial innovation and economic development. NARDL also demonstrated that significant advances in financial innovation are tied to long-term economic growth. [53] addresses the long-and short-term effects of innovation and financial development on significant economic areas and integrate innovation with the finance-growth nexus at distinct income levels. This research shows that the financegrowth and innovation-growth links shift with timescales and income brackets, centered on a panel of data for 48 countries from 1971 to 2015. The importance of innovation in the growth process is considered in this study, which asserts that financial progress is not simply a remedy for sustainable economic growth.
Selected regional studies are brought to the fore. Using a panel of MENA nations from 2001 to 2012, [54] looked into the linkages between financial inclusion, cell phone activity, and economic status. Mobile banking has a favorable effect on financial level and financial inclusion. [55] Investigate the association between fintech loans to businesses, consumers, and critical areas of financial development using data from 109 countries collected between 2015 and 2017. The study reveals that in nations where financial depth is declining, marketplace lending to consumers is increasing, emphasizing the significance of fintech credit in filling the credit gap left by traditional lenders. The findings demonstrate that low-income countries are exploiting the consumer fintech credit potential. [56] report that in Sub-Saharan Africa, new technologies are being developed and adopted that can alter the competitive landscape in the financial sector. [57] unlocks that China's fintech companies have risen significantly faster than those in the United States. This experience has significant implications for comprehending financial innovation and building inclusive financial systems. [58] investigated the introduction of fintech companies into the American retail bank market. They found evidence of a favorable association between fintech financing and business growth.
There is evidence of a strong link between mobile phone penetration and financial inclusion [59,60]. [61] reveal that FinTech (financial technology) is a crucial enabler of financial inclusion. Overall, the findings support the UN-2030-ASD and G20-HLP-DFI goals. [62] reports that FinTech lending has emerged as a potentially promising approach to reduce the cost of borrowing and enhance financial inclusion. The study reveals that FinTech credit can improve financial inclusion while outperforming traditional credit scoring. [63] reveal that Central banks in developed and developing nations have taken numerous steps to promote financial inclusion.
Further, the stipulated theme has also garnered global appeal, with the G-20, IMF, and World Bank Group engaging in generating and monitoring financial inclusion metrics and supporting efficient techniques to enhance financial inclusion. There is the mark of an encouraging association between mobile money use and consumer and corporate financial involvement. Household members with a mobile bank account are more likely to be banking. Further, they receive and send remittances more consistently and save additional money [64,65]. Through its influence on expanded credit accessibility, Mobile payment has also been favorable to impact SME financial inclusion [66]. FinTech is increasingly being viewed as a crucial enabler of financial inclusion. Mobile financial services are seen as the FinTech with the most remarkable ability to yield lower-income people into the economic mainstream [67]. The study by [68] unearths that in 49 countries, mobile phone innovation enhanced financial inclusion. In line, [69] reveal noteworthy progress has been made in using financial innovations to increase financial inclusion in African countries over the last two decades. [64] reveal that financial innovations such as the handiness and use of cellulars provide financial services that encourage household savings and increase the amount saved in selected countries in sub-Saharan Africa. [70] reveal that formal financial services in the Arab world are available to 21% of the population, excluding the Gulf Cooperation Council (GCC) countries. Further, the Arab world falls behind other countries regarding account ownership and formal financial institution credit. Taken together, it can be deduced from the studies that financial innovation has accelerated the growth of financial inclusion in several countries.

Studies on the role of FDI in providing financial inclusion through financial innovations
The third dimension of the purported framework cover studies that investigate the role of FDI in providing a more comprehensive financial inclusion through financial innovations. FDI is critical for reshaping a stationary market into a vibrant one by ensuring the deployment and spread of technology, accelerating capital accumulation, and raising total factor productivity, which helps accelerate economic growth [71,72]. Indeed, long-term capital investment is bolstered by the flow of foreign direct investment into the economic system and technological advancement and innovation [73]. In the host country, FDI has become a critical avenue for transferring technological know-how, advanced technology, innovative ideas, reliable capital flows, and improved managerial abilities [31, 74,75]. [76] reveal that the results of the entirely feasible generalized least squares (FGLS) and panel-corrected standard errors (PCSE) estimators posit that FDI spurs FD in the zone both intrinsically and extrinsically via the supply of money. [77] unfold that most governments attempt to attract foreign investment to gain access to new technology, create jobs, and boost economic growth. New technology brought in by FDI can progress the host country's production capacity and innovative capabilities. [78] uncover that developing the technology environment is critical to developing less developed countries' economies. These countries can benefit from technologically advanced countries thanks to FDI. FDI is expected to provide a broader range of services and better access for different socio-economic communities through increased money supply [79,80]. Overall, it is discerned that there is a shortage of studies on regional economic blocs. The Arab region entails critical studies on the thematic matter of financial inclusion and financial innovation. Thus, the present study investigates the linkage between Financial Inclusion and Financial Innovation with the mediating Role of Inflow of FDI in the Arab region. This study aims to lessen the research deficit on the purported theme. This endeavor shall enhance insight into Financial Inclusion and Innovation in the Arab region. The study's findings shall aid policymakers in a better understanding of financial inclusion in Arab countries and improvise the financial inclusion policy [81,82].

Data and methodology
We have selected 22 Arab countries and included data from 2004 to 2020. The GDP, exports, imports, and remittances are extracted from World Development Indicators (WDI) and OECD National Accounts data files. Data for FDI, number of ATMs, number of depositors, broad money, and little money are extracted from the Financial Access Survey (FAS), International Financial Statistics, and the International Monetary Fund (IMF) balance of payment.
As outlined in the previous section, the prime focus of this study is to evaluate the influence of financial innovation on financial inclusion in Arab countries. Financial inclusion indicates a few characteristics, including accessibility, availability, and usability of financial services [83]. It extends financial services to the unbanked population with the least cost through an efficient financial institution by offering various financial services, i.e., savings, loans, and fund transfers [84,85]. Some studies employ proxy variables to capture the outcome of financial inclusion. However, the majority of them use depositors' numbers with commercial banks as the primary proxy [86,87], while others use proxies like several automated teller machines (ATMs) [88,89]. Furthermore, financial innovation is a term for financial institutions that introduce noble products and improved services [90,91]. This leads to efficient financial intermediation in the economy.
Although there is no specific indicator to represent financial innovation, a few studies [90,92,93] show the ratio of Narrow-to-Broad money to represent financial innovation.
This paper attempts to fill the gap by introducing proxy variables to measure financial inclusion (FI) and financial innovation (FIN). We consider financial inclusion (FI) represented by a few proxy variables, i.e., several automated telling machines (ATMs) depositors' numbers with commercial banks, as dependent variables. In contrast, financial innovation (FIN) is indicated by the ratio between broad money (BM) and little money (NM) as the dependent variable. To increase the robustness of estimation, we have also included a few macroeconomic variables as control variables, i.e., GDP growth (Y), gross capital formation (GCF), foreign direct investment net inflows (FDII) (%of GDP), trade openness (TO) is the sum of export and import (%of GDP), and personal remittances (PR).
We examine the possible nonlinear relationships among FI, FIN, Y, GCF, FDII, TO, and PR in Arab countries. The existing literature on Arab countries pays little attention to the critical role of FIN on FI. Hence, the current study identifies the long-term relationships of certain variables in Arab economies. The present study focuses on FIN as a crucial indicator to explicate FI. It mainly incorporates the possible nonlinear relationships between FI and FIN, previously excluded in paned data analysis. Besides, this study is the first attempt to uncover the nonlinear relationships of the aforestated variables in the Arab economies. To reach our goals, this study adopts the following econometric steps: 1) we apply test Im, Pesaran, and Shin Wstat to detect the existence of unit roots, 2) we conduct cross-sectional dependence (CSD) test alternatively termed as CIPS and CADA recommended by [94]. 3) After confirming the unit root in the existing panel dataset, we apply asymmetric [95] panel cointegration tests following wastelands (error correction based) along with panel NARDL and system GMM approach. The details of panel NARDL and system GMM and methods are discussed later.

Model specification
Existing literature examined the relationships among FI, FIN, Y, GCF, FDI, TO, and R with mixed results but ignored the importance of FIN as a key factor of FI, particularly in Arab countries. We attempted to contribute to the existing stock of literature by extending the model suggested by [96], which can be shown as follows: Subscripts t and I indicate periods and the number of countries, respectively. We have included Y, GCF, FDII, TO, and PR as control variables and ε t as the error term.

Cross-sectional dependence
The Arab economies have certain commonalities because of their mutual economic associations. Therefore, we apply the cross-sectional dependence (CSD) test [97] in our panel dataset with the null hypothesis of cross-sectional independence. This test generates efficient and reliable results [98]. Some studies apply the CSD test before estimating the results to confirm the absence of CSD [99][100][101] CD ¼ ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi ffi 2T NðN À 1Þ

Unit root test
The first-generation econometrics that ignores the presence of CSD are unit root tests used by ADF. This has been modified [94] that focused on cross-section augmented Dickey-Fuller (CADF) and CIPS (Crossectional -augmented IPS, 2003) tests for testing both stationarity and heterogeneity present in panel data [8,102,103]. [94] modified CADF and CIPS unit root tests by applying a standard structure. The CADF test is calculated based on OLS estimation procedures with the standard Dickey-Fuller (DF) regression: where y it−1 and Δy it−1 denotes the cross-sectional averages of lagged and first difference value of the dependent variable, respectively, whereas CIPS statistics indicate the average of individual CADF statistics such as: CADF and CIPS tests allow for the null hypothesis of unit root against the alternative hypothesis with at least a single unit of the panel stationary. The main goal of the unit root test is to determine whether the shocks to FI FIN, Y, GCF, FDII, TO, and PR are permanent or temporary. These tests also suggest information on decomposing the variables. The static variables will indicate a temporary impact, i.e., financial inclusion, financial innovation, GDP growth, GCF, FDI, export, import, TO, and PR. The variables are assumed to be stable after any external shock. On the contrary, if any variable exhibits a unit root, its impact will last long, and consideration must be given to its volatility. Besides, a long-run relationship between the variables and the system's unit root will only have temporary effects.

Asymmetric cointegration analysis
To avoid spurious regression, we test the cointegration properties of related variables within the panel data. We conduct a linear cointegration test before the asymmetric cointegration test. Since CSD is a crucial issue for the cointegration test, we conduct a particular cointegration test, as Westerlund (2007) suggested, which controls for CSD in the panel dataset and applies an error correction approach to detect the potential cointegrating relationships in the panel. Hidden cointegration is another novel test that examines the cointegrating relations between the positive and negative shocks on the variable [95,[104][105][106]. It assumes that cointegrating relations can be hidden within the positive and negative elements of the variable.
In contrast, there can be no relation in the only positive form of the variable because of the incidence of possible unknown dynamics within a non-cointegrated relation which moves away from the component of the variables rather than the variables themselves. Besides, the decomposition of FI, FIN, Y, GCF, FDII, TO, and PR is essential because of changes in financial and economic policies over the years, which can create a structural break in the model and thus fail to capture the effect in the long run. Throughout the study period (1980-2020), various financial and economic changes took place globally, such as the economic crisis of 2008 and the oil price shock in 2014.

Panel NARDL
Before introducing the panel NARDL model, let us begin with the following structure of Panel ARDL [107]: Under the asymmetric ARDL, we examine the positive and negative effects of independent variables in the equation. We test only one asymmetric relation, such as the financial innovation (FIN) response to financial inclusion (FI). The following equation represents the panel NARDL model adopted in this study: FIN+, FIN-and FDII+, FDII-represent positive and negative changes in financial innovation and foreign direct investment inflow. The long-run coefficients are calculated as FIN + = Which are obtained from the positive and negative partial sum decomposition of FIN and FDII in the following way: We compute the following error correction model using Eq 7: In Eq 10, the error correction term (F it−1 ) indicates the adjustment speed to achieve longrun equilibrium derived from the asymmetric panel Eq (7), and the coefficients associated with the explanatory variables show the condition of the short-run.

Panel granger causality test
We test system GMM-based panel granger causality as [108][109][110][111] recommended. We adopt a causality test with a panel error correction framework to detect the causal direction among financial inclusion, financial innovation, GDP growth, GCF, FDII, export, import, TO, and PR. [108] suggest two steps: firstly, estimating dynamic-OLS for retrieving the residuals, and secondly, estimating DOLS with an error correction term (ECT) with first-lagged values that allow the presence of long-run causality. Both short-run and long-run causality equations are as follows:

Dynamic panel system generalized method of moments (SYS-GMM)
In this study, we also adopt the extended version of dynamic panel models like moments of the method (GMM) introduced by [112] and further modified by [113]. We focus on the dynamic panel system generalized method of moments (SYS-GMM) model to address the problem of possible simultaneity and to further examine the relationship among FIN, FI, Y, GCF, FDII, EX, IM, too, and R. We exclude the first difference GMM method due to its biased estimation from the weak instrument with small sample size and the issue of endogeneity as the variables tend to follow random walk process [113]. Therefore, we consider SYS-GMM to overcome the limitations of the first difference GMM [114,115]. Since we have different groups, we apply Sargan and Hansen J statistics to test the over-identification problem of the instruments.

Data analysis and interpretation
The study began with a preliminary data properties assessment of typical dynamism and sharing properties. The study performed cross-sectional dependency among the selected variables for the study by performing [97,[116][117][118], and the test of heterogeneity following [119]. The cross-sectional dependency and heterogeneity test results are displayed in Table 1. The estimation test statistics confirm the presence of typical dynamism among the units, i.e., the rejection of cross-sectional independence; moreover, the test statistics of heterogeneity, i.e., Δ and adj.Δ. Study findings establish the availability of heterogeneous properties in the selected data set by rejecting the null hypothesis of homogeneity at a 1% level of significance. Next, the study moves to gauge the variable's order of integration by performing both conventional panel unit root, following Levin-Lin-Chu test [120], the Im-Pesaran-Shin test [121] and the Fisher-ADF [122] which have the null hypothesis all the panel contains a unit root and results display in Table 2; furthermore, panel unit root tests are efficient in handling the presence of cross-sectional dependency in the data set, commonly known as CIPS and CADA proposed by [94]. The results of panel unit root tests are exhibited in Table 3. Referring to the results report in Table 2, it is manifested that variables are stationary either at level or/. After the first difference, neither variable is exposed to stationary after the seco nd difference.
The following results of panel unit root tests with CIPS and CADF are displayed in Table 3 under the assumption of constant and constant & trends. Test statistics under both estimations ascertain the variables are stationary in mixed order, implying variables are stationary either at a level or/and first difference. Now, we can perform empirical target models with econometrical methodology.

Financial innovation foster financial inclusion
Before gauging the long-run elasticity running from financial innovation to financial inclusion in the empirical assessment, here, the study evaluates long-run cointegration by performing a panel cointegration test initiated by [123,124], Kao residual test [125], and ECM-based cointegration test introduced by [126]. The results of the panel cointegration test are exhibited in Table 4. Panel-A in Table 4 reports Pedroni panel cointegration test statistics. Nine out of eleven coefficients are statistically significant at a 1% significance level. Findings ascertain the long-run association in the empirical model. The Kao residual test results, see panel-B in Table 4, ADF test statistics documented as statistically significant at a 1% level, implying the rejection of the null hypothesis of no-cointegration. Panel C in Table 4 displays the results of the panel cointegration test following [126]. It is apparent from the associated p-value that all the test statistics are statistically significant at a 1% significant level, indicating the rejection of the null hypothesis of "no-cointegration." Hence, the panel cointegration tests suggest the availability of a long-run association between financial innovation and financial inclusion in the Arab world.
Next, the study moves to perform the preliminary assessment for detecting the association between financial innovation and financial inclusion through the execution of OLS, Random  Table 6 displays model estimation results following econometrical techniques of GMM and system-GMM with financial innovation measures by access to financial services (for model -1) and access to financial products (for model -2). For model -1, the coefficient of financial innovation documents positive and statistically significant association with financial inclusion in

PLOS ONE
Financial innovation foster financial inclusion both GMM (a coefficient of 0.271) and system-GMM estimation (a coefficient of 0.180). The finding suggests that the development of financial innovation in the economy can play an essential role in accelerating financial inclusion. Financial innovation allows the unbanked population to avail of financial services and incorporates them into the formal financial system. The existing literature supports our study findings; see [6,32,127]. In particular, a 10% development in financial innovation can facilitate unbanked population inclusion into the formal financial system by 1.8% to 2.71%. Financial innovation and inclusion are helping countries get out of poverty to have a more inclusive economy. It is becoming increasingly common for people to use internet banking, mobile banking, short message service banking, electronic banking (e-banking), agents, mobile money accounts, and mobile wallet banking. This is bringing the unbanked into the financial system. Refers to FDI impacts on financial inclusion. The study establishes a positive, statistically significant association, suggesting that continual foreign capital inflows induce the scope of financial services available to the population. The study findings align with the existing literature [1,13,88,128,129]. Specifically, a 10% growth in FDI inflows can augment the speed of unbanked population inclusion into a formal system by 3.19% in GMM estimation and 2.55% in system-GMM estimation by offering a diversified financial services economy. FDI's impact on financial inclusion can be addressed directly and indirectly. Refers to the direct linkage between FDI and financial inclusion, existing literature postulated that financial intermediation and efficiency boost and attract foreign investors; thus, the host economy continuously ensures improved financial products and services and easy access to formal financial systems. It suggests that inflows of FDI inject pressure to offer better financial institutions and financial facilities, eventually augmenting the financial inclusion process that unbanked population inclusion into the formal financial channel. While in terms of the indirect impact of FDI on financial inclusion, inflows of FDI accelerate economic progress and host country population income possibilities. Excess money flows in the economy induce financial integration, implying that people tend to move savings propensity for future consumption. The actions of populations inclined toward financial institutions act as a catalyst and perused financial institutions to offer better and improved financial products and services, eventually augmenting the development of financial inclusion at large. Furthermore, since personal remittances and economic growth adversely cause the present trend of financial inclusion, trade openness plays a directive role in further developing financial inclusion.
For model -2, access to financial products is a proxy for financial inclusion. Study findings disclosed the positive association between financial innovation (a coefficient of 0.490 for GMM estimation) and (a coefficient of 0.298 for system-GMM estimation) and financial inclusion. These findings suggest that a 10% growth in financial innovation in the financial system can accelerate financial inclusion, i.e., the unbanked population can avail of the benefits of finical products offered by the financial instructions by 2.98% to 4.9%. On the other hand, inflows of FDI document an adverse statistically significant connection with financial inclusion (a coefficient of -0.03 in GMM estimation) and (a coefficient of -0.011 in the system-GMM). These findings suggest that foreign capital inflows in the economy deter the inclusion process by offering financial products, such as credit facilities, in the economy. The possible explanation is that the availability of money supply may discourage the population from reaching financial institutions to expand existing capacity through credit extension. Moreover, according to the control variables' impact on financial inclusion, it is apparent that gross capital formation and economic growth positively cause financial inclusion. However, adverse effects can be observed from personal remittances and trade openness, validated in GMM and system-GMM estimation.
The nonlinear effects of financial innovation and inflows of FDI on financial inclusion investigate by following the nonlinear framework introduced by shin. Results of asymmetric estimation are displayed in Table 7, consisting of three output panels. For long-run elasticity (see panel-A in Table 7), study findings reveal asymmetric shocks in financial innovation, i.e., the positive shocks (a coefficient of 0.128) and the negative shock (a coefficient of 0.169) positively liked with financial inclusion, which is measured by access to financial services. These findings suggest that the positive and negative shocks critically influence the progress of the unbanked population inclusion into the formal financial system in innovativeness in the financial system. A 10% shock in either direction can result in 1.28% development with favorable financial innovation variations. In contrast, downward movement can be observed by 1.69% due to negative innovation in the financial system. Hence, it is apparent that negative shock magnitudes are more robust than favorable variations in cause-effects output.
Study findings suggest that the financial sector must accelerate financial inclusion in credit product accessibility. It implies that excessive innovativeness is destructive in including the unbanked population in the formal financial system. On the other hand, (see, Panel-A, model -2), the asymmetric effects of financial innovation, that is, positive shocks (a coefficient of -0.058) and adverse shocks (a coefficient of -0.086) documents positively tied with financial inclusion, which is measured by access for credit products in the financial system. The asymmetric effects of FDI inflows that are positive and negative on financial inclusion establish a positive, statistically significant tie in the long run. Precisely a 10% augmentation in FDI inflows can accelerate financial inclusion by 0.80% in model 1 and by 0.94% in model 2 due to positive shock; at the same time, negative variations can result in a decrease in the inclusion process by 0.45% in model-1 and by 0.25% in model-2. It is apparent from the elasticities of asymmetric effects from FDI inflows on financial inclusion that persistent inflows of FDI can catalyze the unbanked population inclusion in the formal system. Therefore, economic policy pertinent to international capital flows can also increase financial inclusion in the financial system. Panel-C in Table 7 displays the results of the symmetry test. Study findings document the long-run asymmetry of financial innovation to financial inclusion, which applies to both model estimations. Only model 2 exposes asymmetry associations between financial innovation and financial inclusion in the short run. Moreover, the Wald test statistics confirm the asymmetric association between FDI inflows and financial inclusion in the long and short run. These conclusions apply to both model implementations.
Next, the directional causality between financial innovation and financial inclusion is gauged by performing a granger causality test with System-GMM specification following [109,130]. The causality test results in Table 8 consist of two output panels. Panel-A in Table 8 shows causalities among selected variables where financial inclusion is measured by access to financial services. Study findings document several directional causalities in estimation. The study disclosed the feedback hypothesis holds for explaining the causality between financial innovation and financial inclusion [

Robustness test
The subsequent study performs empirical model coefficients robustness by implementing the dynamic fixed effects model introduced by [131] in panel form. The results of the robustness test are displayed in Table 9. According to the coefficients for financial innovation derived from Model-1 (2). The study documented a positive and statistically significant link between financial inclusion and financial innovation with a coefficient of 0.535 (0.269). Furthermore, the effects of FDI inflows on financial inclusion exposed positively and statistically significant, with a coefficient of 0.025 (0.084). Considering the nexus between explanatory variables and financial inclusion, it is conclusively revealed that each coefficient's sign and significance align with System-GMM estimation, which is the study's prime output.

Discussion
Study findings reveal asymmetric shocks in financial innovation, i.e., the positive shocks (a coefficient of 0.128) and the negative shock (a coefficient of 0.169) positively liked with financial inclusion, measured by access to financial services. These findings suggest that the positive and negative shocks critically influence the progress of the unbanked population inclusion Table 8. Results of granger causality test with system-GMM specification. into the formal financial system in innovativeness in the financial system. A 10% shock in either direction can result in 1.28% development with favorable financial innovation variations. In contrast, downward movement can be observed by 1.69% due to negative innovation in the financial system. Hence, it is apparent that negative shock magnitudes are more robust than favorable variations in cause-effects output. Financial innovation is revolutionizing how consumers access and use financial services, providing greater inclusion and access to financial products and services than ever before, and has been achieved by introducing new technologies, such as blockchain, artificial intelligence, and cloud computing, enabling innovative financial product development. These products can expedite access to financial services for those traditionally excluded from the mainstream, such as those without bank accounts or poor credit ratings. Financial innovation has improved the consumer experience by providing convenient, cost-effective, and tailored financial services. Additionally, it has reduced transaction costs and time associated with conducting transactions in different countries. All in all, financial innovation has played an essential role in advancing financial inclusion across the world [2,14,132]. By leveraging technology and alternative data sources, financial innovation can provide more accessible, affordable, and secure financial services to those previously underserved, particularly for the unbanked and underbanked population, who are often left out of traditional financial services due to limited access or lack of resources. Also, financial innovation has enabled advances in digital payments, remittances, and other financial services, making it easier for the unbanked and underbanked populations to access greater financial inclusion. By utilizing technology and alternative data sources, financial innovation can provide more accessible, affordable, and secure financial services to those previously left out of traditional banking systems due to limited access or lack of resources. Consequently, this has been highly instrumental in increasing financial inclusion for people who would otherwise not have access to these vital services.

Panel-A: financial inclusion measured by access to financial services
In conclusion, financial innovation has enabled millions of people to access financial services, such as loans and savings, that they may have otherwise been excluded from due to a lack of resources. Financial innovation has made it easier for people to save, invest, and manage their money more efficiently. This has resulted in greater financial inclusion and stability for individuals, businesses, and governments worldwide. By leveraging the power of technological advancements such as blockchain and AI, financial innovation's impact on global finance will only increase over time.
Foreign direct investment (FDI) can positively and negatively affect financial inclusion. It can help to create financial opportunities for individuals, businesses, and economies. However, it can also contribute to excluding certain groups from access to financial services and resources. On the one hand, FDI can lead to increased access to capital for companies in emerging markets, which in turn helps them invest in their businesses and expand their operations, which leads to more employment and economic growth opportunities for those otherwise excluded from traditional finance systems due to a lack of access or resources. On the other hand, FDI can negatively affect local communities if it comes with an influx of foreign workers who can pay higher salaries than locals because they are not subject to the same labor laws or regulations. This can lead to a situation where locals cannot compete with foreign workers, creating further exclusion from access to finance.
Moreover, foreign direct investment (FDI) is an essential source of capital for many countries. It can have a positive impact on financial inclusion. FDI can help to create jobs, increase access to financial services, improve the quality of services, and reduce poverty. It also encourages the development of better infrastructure. It increases economic competition, which can lead to more efficient markets. As such, FDI can potentially improve access to banking services, credit products, insurance products, investments, and other financial instruments for individuals currently excluded from these services due to low incomes or lack of experience using traditional banking channels. In this way, FDI may help close gaps in levels of financial inclusion among various groups in society by creating more opportunities for all individuals regardless of income level or experience with traditional banking

Conclusion and policy suggestions
Bringing the unbanked people into the financial network is one of the deterministic facts in achieving sustainable development goals. Therefore, financial institutions have relentlessly worked on financial inclusion by adapting and diffusing FI in the financial sector over the recent decades. The current study seeks to determine whether financial innovation accelerates financial inclusion in the Arab world. We performed several econometric tools with two empirical models to gauge the association and magnitudes running from financial innovation to financial inclusion, and the key findings of the study are summarized as follows: First, the study begins with an elementary assessment before initiating focused model estimation. The panel unit root test outcomes ascertain that both variables are interpreted in mixed order, either at a level or after the first difference. The association, in the long run, ascertains the panel cointegration test application following [123,124,126]. Furthermore, preliminary empirical model estimation executed by implementing OLS, RE, and FE and the Hausman test ascertains that the FE model is efficient and consistent.
Second, the estimations of GMM and system-GMM estimation for gauging the magnitudes of financial innovation and FDI inflows on financial inclusion in the Arab world reveal that positive and statistically significant impacts are moving from financial innovation to financial inclusion in both estimations. This finding aligns with empirical literature [32]. These outcomes suggest that innovativeness in the financial system produces ample diversification opportunities in offering financial products and services, thus allowing greater ease of extension for unbanked people into the formal banking network. [133] postulated that a robust financial system could offer various financial products and services to unbanked people. Access to formal financial products and services will encourage the poor and unbanked people to invest in education and human development projects, positively impacting the economy [134]. Similarly, the inflows of FDI disclose a positive tie with FI, supported by the empirical literature. FDI inflows contribute to the economy in diversified ways; however, the financial sector's impact is more evident since foreign investors prefer to reallocate capital to those economies with higher efficiency and lower cost [135]. FDI in the financial sector, especially in the banking sector, allows foreign participants in the baking industry and their presence to play catalyst roles and establish financial stability [136][137][138][139][140].
Third, the asymmetric impacts of financial innovation and inflows of FDI on FI are evaluated by performing empirical models with a nonlinear model familiarized by [141]. The Wald test results for symmetry document long-run asymmetry effects from financial innovation and inflows of FDI. Moreover, considering the magnitudes of financial innovation's asymmetric effects, positive and negative shocks expose a positive, statistically significant linkage in model -1 and a negative, statistically significant tie in model -2. These findings suggest that over a long period, FIN impact varies with the appropriate selection of measures for FIN, implying that FI inclusion with augmenting financial services is case adaptation. Diffusion of FIN can result in positive growth. In contrast, controlled FIN can be an appropriate strategy for FI financial inclusion by offering financial products to the unbanked population.
Fifth, the directional association among researched variables is evaluated using the granger causality test with system-GMM following the specifications of [109,130]. The estimation ascertains the presence of bidirectional causality between FIN and FI, which aligns with [32,142]. In addition, our findings are also aligned with [133], who advocated that giving financial access to firms and households through a variety of banking services and increasing the number of female users of these services lead to higher economic growth. Moreover, the sectors dependent on external finance grow more rapidly in countries with high FI levels. Lastly, the above findings suggest that financial innovation, trade openness, and institutional quality should continue in the selected countries to enhance financial inclusion and promote capital formation in the selected countries.
Taking account of the above study findings, the following policy suggestions have proposed for further development. There is a need for more financial inclusion in Arab nations in order to spur economic growth and development. However, the current financial landscape in Arab nations is not conducive to financial inclusion. In particular, there is a lack of access to formal financial institutions and products, as well as a lack of awareness of financial services among the population. There are several policy suggestions that could help increase financial inclusion in Arab nations. Firstly, there needs to be greater access to formal financial institutions and products. This can be achieved through initiatives such as providing subsidies for those who open bank accounts, or by increasing the number of banking outlets in rural and underserved areas. Secondly, awareness-raising campaigns are needed to educate the population about the importance of financial inclusion and the available services. Lastly, regulation needs to be put in place to ensure that financial institutions are providing inclusive products and services that meet the needs of all segments of the population. The above policy suggestions would go a long way in promoting financial inclusion in Arab nations and contributing to economic growth and development.
The future study can be initiated by taking account of country specific assessment in order to formulate more exact policy formulation and implementation that is sectoral data for empirical infestation